Cost Segregation on Primary Residence if renting out the basement

Tax, SDIRAs & Cost Segregation
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Cost Segregation on Primary Residence if renting out the basement

Ryan Judkins
Member since 2022 · 6 posts · 7 votes

I live upstairs in a primary residence and have just started renting out the basement.  Can I get cost segregation depreciation on the % of the house that is rented out?

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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
3y

I would speak with a CPA before going with your stategy.

Rental losses on a owner-occupied SFH rental may be limited(even if you qualify for real estate professional status).

But if your question if can I do a cost segregation...the answer to that is yes...

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    3y

    Yes, if you meet all the rules that can get complicated especially for a house hack.

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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    3y

    @Ryan Judkins Yes, it's absolutely possible. There's a bit more that goes into it than a cost segregation on an entire home, but it could still be beneficial. I'd recommend getting a free cost/benefit analysis quote from a cost seg company to determine if the tax benefits would outweigh the costs. Do you have real estate professional status?

    561-253-6640
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  • Ryan Judkins
    OP
    Member since 2022 · 6 posts · 7 votes
    3y
    My wife is a real estate agent
    0Reply
  • Ryan Judkins
    OP
    Member since 2022 · 6 posts · 7 votes
    3y

    @Julio Gonzalez - my wife is a real estate agent

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  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    3y

    Basement Dwellers will be your renters.

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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    3y
    Quote from @Ryan Judkins:

    @Julio Gonzalez - my wife is a real estate agent


     Real estate professional status is for tax purposes and has multiple qualifications. I'd speak with your CPA to confirm whether or not your wife can qualify as a real estate professional because that makes a difference in being able to use your losses from the cost seg study now versus rolling them forward.

    https://www.aicpa.org/resource...

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    I would speak with a CPA before going with your stategy.

    Rental losses on a owner-occupied SFH rental may be limited(even if you qualify for real estate professional status).

    But if your question if can I do a cost segregation...the answer to that is yes...

    [email protected]917-280-8544
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  • Catherine Javier
    Investor · Member since 2021 · 96 posts · 19 votes
    2y
    Quote from @Julio Gonzalez:

    @Ryan Judkins Yes, it's absolutely possible. There's a bit more that goes into it than a cost segregation on an entire home, but it could still be beneficial. I'd recommend getting a free cost/benefit analysis quote from a cost seg company to determine if the tax benefits would outweigh the costs. Do you have real estate professional status?

     I have the sam situation. Just wondering if this is allowable especially if I meet the requirements for short term rental requirement for tax purposes like 100 hours?

    any thoughts? Thanks!
    1Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    2y

    @Catherine Javier It's hard to say without more information, but your CPA should be able to tell you. Are you working with a CPA that specializes in real estate taxation?

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  • Catherine Javier
    Investor · Member since 2021 · 96 posts · 19 votes
    2y

    We were, but he missed 2 things, my wife’s income and the taxes I paid. He was able to correct them bit we are a bit hesitant and we’re trying to find a better CPA that can be our tax planner/strategist.

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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    2y

    @Catherine Javier 

    I have worked with a number of great CPAs that specialize in real estate taxation over the years and would be more than happy to provide you with recommendations if you'd like? Also @Ashish Acharya and @Michael Plaks are very active in the forums and highly recommended.

    561-253-6640
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  • Nate MeekerBusiness Member
    Real Estate CPA | California · Member since 2020 · 544 posts · 251 votes
    2y

    @Catherine Javier 

    IRS Pub 527 states "Example. You rent a room in your home
    that is always available for short-term occupancy by paying customers. You don’t use the
    room yourself and you allow only paying customers to use the room. This room is used
    solely as a hotel, motel, inn, or similar establishment and isn’t a dwelling unit."

    Common areas don't apply. Only if you have a portion not used for anything else and you meet all other rules. You would want to allocate expenses on a sqft. basis.

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  • Catherine Javier
    Investor · Member since 2021 · 96 posts · 19 votes
    2y
    Quote from @Nate Meeker:

    @Catherine Javier 

    IRS Pub 527 states "Example. You rent a room in your home
    that is always available for short-term occupancy by paying customers. You don’t use the
    room yourself and you allow only paying customers to use the room. This room is used
    solely as a hotel, motel, inn, or similar establishment and isn’t a dwelling unit."

    Common areas don't apply. Only if you have a portion not used for anything else and you meet all other rules. You would want to allocate expenses on a sqft. basis.


     Thanks! 
    by the way to qualify for the STR, of I am not mistaken it should be 7 days or less right


    so 7.2 days immediately disqualifies me immediately? 
    or 8 days and above 

    I just averaged the length of stay…

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